Beware of once-off credit agreements

We often lend money or allow a purchaser credit, linked with the payment of interest. Think friendly loans, credit on a purchase of a bicycle, land and the like.

Such agreements, however innocent they may be, may well be voidable in future, given a recent amendment of one of the thresholds of the National Credit Act (the Act).

Generally speaking, the Act provides that any credit provider, who enters into a credit agreement which is at arms-length and which provides for interest to be paid, must be registered as such with the National Credit Regulator (NCR). Failure to do so will render such agreements void. Do note that there are several exemptions of persons (such as family and larger juristic persons) and transactions which apply and which are not subject to the penaly of voidness; these should be checked if any uncertainty exists.

Until now, once-off credit agreements were generally exempted from the Act by a threshold of R500 000, which needed to be crossed before the credit grantor needed to be registered. This threshold was lowered to nil on 11 May 2016 (and will come into effect six months thereafter), thus bringing all once-off credit agreements into the net of the Act.

This seems a Draconian provision: until fairly recently our courts had taken the view that the provisions of sections 40 and 42 of the Act applied only to the credit provision industry. All of this changed, however, when the NCR took on a gentleman by the name of Opperman in the Constitutional Court and the provisions of the Act was held to apply to a once-off transaction also. The end result of which is today that (generally speaking), if you give any credit of above R500 000 to another and charge interest, you need to be registered as credit provider, unless the loan is below the current threshold.

With this threshold being lowered to nil from 11 November, any provision of credit, which falls within the definition of the Act, will be voidable, if the credit provider is not registered under the Act.

To make matters more interesting: the NCR has just fired a shot across the bows of credit providers: it took on Moneyline Financial Services (Pty) Ltd (which entity had given credit to holders of SASSA grants) with the stated intent of deregistering that entity for non-compliance with the provisions of the Act. The first skirmish took place in the National Consumer Tribunal and the NCR emerged victorious.

All of this is indicative of a much stricter line to be taken by the State on the granting of credit. Be careful. In mid-November, unless anything changes, the new limits will kick in and our credit landscape will change dramatically.

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